1. COMMODITY FUTURES IN INDIA

2. Why Commodity?
Diversification
Less Manipulations
/ Intrinsic Value
High Leverage

3. History of Commodity Derivative
Market
Chicago businessman formed CBOT in1848
In 1898 Chicago Mercantile Exchange start trading on Future
Contract
For Spot Market Forward Market Commission (FMC) setup in
1953
In 1875 establishment of Cotton Trade Association
4 National level exchanges MCX, NCDEX, NMCE, ICEX

4. Benefits
1. • Driven on demand & supply
2. • Easy to understand & invest
3. • Less investment i.e. 5 - 7 %
4. • Market timing 10 am – 11.55 pm
• Price manipulation not possible because
5.
of global market
• Volatility gives chance for easy entry
6.
and exit

5. Opportunities
Hedging
Arbitrage
• Intra Day
Trading
• Positional

6. Indian Commodity Exchange
NBOT
Regional
Others
FMC NCDEX
MCX
National
NMCE
ICEX

7. Multi Commodity Exchange of
India Ltd.
An independent and demutualised exchange
Promoted by Financial Technologies (India)
Limited
Introduced a state –of –the –art, online digital
exchange for commodities trading
On the first week of November, 2004 signed
MOU with the Tokyo commodity Exchange

8. National Commodity & Derivatives
Exchange Limited (NCDEX)
A public limited company incorporated on April 23,
2003 under the Companies Act,1956
Professionally Managed online Multi Commodity
Exchange
A only commodity exchange promoted by National
Level Institution
Regulated by Forward Market Commission

9. Difference & Similarities between
MCX & NCDEX
MCX NCDEX
Month Different for each commodity Normally monthly
Expiry day Different for commodities 20th of each contract month
Timing Summer (May to October) : All Summer (May to October): All
Commodities : 10 am to 5 pm Commodities : 10 am to 5 pm
International Commodities : International Commodities :
5 pm to 11.30 pm 5 pm to 11.30pm
Winter (Nov to April) : Winter (Nov to April) :
10 am to 5 pm 10 am to 5 pm
International Commodities: International Commodities :
5 pm to 11.55 pm 5 pm to 11.55
Active Commodity Gold, Silver, Crude, Oil, Copper, Pulses, Sugar, Wheat, Spices, Gold,
Natural Gas, Nickel, Ref. Oil, Menthe Silver, Steel, Soy Complex
Oil

10. Exchange Volume of MCX &
NCDEX
MCX
Jul-09
NCDEX
Mar-09
Nov-08
Jul-08
Mar-08
Nov-07
Jul-07
Mar-07
Nov-06
Jul-06
Mar-06
Nov-05
Jul-05
Mar-05
Nov-04
Jul-04
Month
0
600000
500000
400000
300000
200000
100000

11. Classification of Commodities
Bu l l i on Gol d an d S i l ve r
Me tal s Zi n c,Le ad, C oppe r, Ni ck e l , S te e l i n gots
En e rgy C ru de O i l , Natu ral Gas, He ati n g oi l , Gasol i n e
Pu l se s C h an a
Ru bbe r, Gu ar S e e d , Gu argu m , C ash e w,
O th e rs Al mon d,Gu r, C offe e
O il & C astor S e e ds, S oy S e e ds, C astor O i l , Re fi n e d S oy
O i l se e ds O i l , S oyme al , Mu stard S e e d
S pi ce s Pe ppe r, Re d C h i l l i , Je e ra,Tu rme ri c

12. Contact Specification (MCX)
Lot Size (Qty) / 1 Approx Margin
Commodity LTP Price Quotation Rs (+ & -) Margin % Lot Value(Rs) (Rs) Contract Months
Feb, April, June,
GOLD 17700 10GRMS 100 4.00% 1,770,000 70,800 Aug, Oct, Dec.
Mar, May, July,
SILVER 28300 1KGS 30 5.00% 849,000 42,450 Sep, Dec.
COPPER 322 1KGS 1000 5.00% 322,000 16,100 Nov, Feb, April.
Jan, Feb, Mar.
CRUDEOIL 3550 1BBL 100 5.00% 355,000 17,750 (Monthly)
Nov, Dec,
NATURALGAS 240 1mmBtu 1250 8.00% 300,000 24,000 Jan.(Monthly)
Nov, Dec,
NICKEL 750 1KGS 250 7.00% 187,500 13,125 Jan.(Monthly)

13. Contact Specification (NCDEX)
Price Variant (1 Approx Contract
Commodity LTP Quotation Lot Size Margin % Rs + & - ) Lot Value(Rs) Margin (Rs) Months
Nov, Dec,
Turmeric 10700 Rs/Quintal 10 MT 34.00% 100 1,070,000 363,800 Apr.
Nov, Dec,
Jan, Feb,
Mar,
Guar Seed 2800 RS/QUINTAL 10 MT 7.00% 100 280,000 19,600 Apr.(Monthly)
Nov, Dec,
Soy Oil 495 Rs/10Kgs 10 MT 5.00% 1000 495,000 24,750 Jan.(Monthly)
Nov, Dec,
Jan, Feb,
Mar,
Pepper 15650 RS/QUINTAL 1 MT 5.00% 10 156,500 7,825 Apr.(Monthly)
Nov, Dec,
Jan, Feb,
Chana 2620 RS/QUINTAL 10 MT 6.00% 100 262,000 15,720 Mar.(Monthly)
Nov, Dec,
Jan, Feb,
Soy Bean 2420 RS/QUINTAL 10 MT 6.00% 100 242,000 14,520 Mar.(Monthly)

14. International commodity
International Commodity Exchange
exchange

15. New York Mercantile Exchange
(NYMEX)
Biggest exchange for trading in Physical Commodity
Future
NYMEX COMEX
Natural
Crude oil Gold Silver
Gas

16. London Metal Exchange (LME)
1877 as a direct consequence of the industrial revolution witnessed in Britain in 19th 1877
Primary focus on base metals
LME trades 24 hours a day
LME also offer option contract (Trade Average Price Option Contract – TAPOC) based
on Monthly Average Settlement Price (MASP)
Trading turnover value is more than US $ 2,000 billion per annual
Commodity traded –Aluminum, Coppers, Nickel, Lead, Tin, Zinc

17. Chicago Mercantile Exchange
(CME)
Trade heavily Commodities
1898 interest rate trade –
primarily to future, stock Butter, Milk,
trade in indices & Frozen Pork
agricultural foreign bellies, live,
commodities exchange cattle, Non –
futures fat Dry Milk

18. Tokyo Commodity Exchange (TOCOM)
• Second largest commodity future exchange
1.
• TOCOM initiative towards establishing Asia as the benchmark
2. for price discovery & risk management in commodities
• Platform for future price discovery in Asian for Asian players in
3. Crude Oil
• Commodity Traded- Crude Oil, Gasoline
4.

19. Market Players
Exporters /
Producers HNI / F & O
Importers
Traders /
Consumers
Brokers

20. Concept of Commodity
Derivative
Gold Jeweler
Example:-
For making jewellery XYZ buy 1 kg gold at 21000 for &
it sell jewellery in 3 month cycle after 3 month gold
prices are 19000.

21. Strategy
XYZ Buy Spot Price 21000 / 10gm
XYZ Sell 1 kg hold short Future Price 21050
Net Payoff – 21,000*100 + Initial Margin
= 21,00,000 + 5% of 21,00,000
Expiry 3 months = 1,05,000 + 21,00,000
= 22,05,000

22. Pay Off Schedule
On Expiry Physical Gold Future Net Payoff
Closes At Position
(21,050)
17000 -4,00,000 +4,05,000 +5000
18000 -3,00,000 +3,05,000 +5000
19000 -2,00,000 +2,05,000 +5000
20000 -1,00,000 +1,05,000 +5000
21000 0 0 0
22000 1,00,000 -95000 +5000
23000 2,00,000 -85000 +5000
24000 3,00,000 -75000 +5000

23. Mechanism of Hedging (Agent)
•Agree to sell flour to bread
APRIL manufacturer
•Buy wheat futures contract
WHEAT MILLER
•Sell wheat futures contact
•Buy wheat in the physical
JULY market for delivery of flour
to Bread Manufacturer

24. Mechanism of Hedging
(Producer)
•Sell Guar seed November
SEPTEMBER
Futures
FARMER
•Buy Guar seed November
Future to square off
NOVEMBER transaction
•Sell Guar seed Harvest

25. Mechanism of Hedging(Exporter)
•Export contract to sell
JUNE (export) automobiles in
October
•Buy steel futures contract
AUTOMOBILE
MANUFACTURER
•Sell steel futures contract to
square off transaction
•Buy steel from Physical
SEPTEMBER
market to meet export
requirement

26. Commodity V/S Financial
Derivatives
Commodity Financial
Derivative Derivative
Settlement Physical / Cash Cash
Delivery Notice Yes No
Period
Warehousing Yes No
Quality Of Assets Issue No Issue

27. Parity Calculation
Crude
NYMEX Crude 76.30
Present Exchange Rates 46.50
3547.95
Parity Price Of MCX Crude 3547.95
Natural Gas
NYMEX Natural Gas ($/mmbtu) 5.14
Present Exchange Rates 46.50
239.01
Parity Price Of MCX Natural Gas 239.01

28. Brokerage Calculation
Brokerage for Clients
Gold Per 1 Kg
Gold price per 10 gm 17600/- 1760000
Brokerage 0.03% 528
Service Tax (10.2%) 54
Turnover Charges (0.004%) 70
Service Tax on Turnover Charges (10.2%) 7
Stamp Duty on Turnover (0.001%) 18
Total Cost 677

29. Learning the Commodities
Global
Demand &
Seasonity Commodity
Supply
Prices
Global Political
Fx Currency
/ economic INR V/S - $
movement - $
events
Indian
economic data / Weather
policies

30. Factor Effecting Gold /Silver /
Crude / Coppers Prices
Employment Data First Friday of month
GDP Last Friday of month
ISM Mfg. Index First working day of month
Trade Deficit Third week of month
Consumer Price Index Third week
Production Price Index Third week
Industrial Production Third week
Retail Sale Third week of month
Durable Goods Order Last week of month
Federal Bank Meeting Eight times in year

31. Important Website
www.bulliondesk.com
www.forexfactory.com
www.bloombear.com
www.futureresource.com
www.nymex.com
www.tocom.com.jp
www.gold.org
www.kitco.com